The rest of the world will forgive Canadian investors for feeling a bit smug about our finances. When the U.S. housing market nosedived, Canadian home prices sputtered briefly, then continued their decade-long run of rising property values. And when most of the Western world’s banking systems got caught up in a cascading series of bad – an often illegal – investments, the Canadian system was held up as a model of stability and sound regulatory policy.
But in a global village, it’s hard to escape completely unscathed when your closest neighbours are all crashing and burning. Recently, there have been signs that Canadian investor confidence is waning here at home.
Investor Sentiment Index
In July, Manulife Financial Corporation released its twice-annual Investor Sentiment Index, a survey of 2,000 investors across the country, and the results showed a dip in confidence. The telephone survey, now in its 13th-year, asks participants a number of investing-related questions and rates their overall confidence. The most recent result was a confidence level of +24, down from +26 in December 2011 and +29 in June 2011.
In terms of specific concerns, the survey found that for most people (88 per cent), their main concern was “covering the basic cost of living” while less than a third (31 per cent) planned to give to charity and less than half (48 per cent) had travel plans as a priority.
“Recent economic challenges, including the persistent financial instability in Europe, help us understand why Canadians remain cautious about investing,” said Paul Rooney, president and CEO of Manulife Canada, in a release. “As these global economic challenges dominate headlines without any significant signs of recovery, confidence in financial markets will continue to be uncertain.”
(Manulife itself is feeling the pinch, announcing a second-quarter lost of $300 million – versus a $490 million profit the previous year – based on a negative re-evaluation of the company’s long-term investment assumptions.)
Real Estate Slide
Part of the confidence dip can be attributed to what may be the arrival of a long-awaited slide in real estate prices. At the beginning of August, Scotiabank announced that they expect Canadian housing prices to drop by about 10 per cent in the next two or three years, primarily in Toronto and Vancouver. Back in June, TD Bank predicted a 15 per cent drop in home prices for those two markets. Perhaps in anticipation of reduced prices, home sales in Toronto were down 1.5 per cent in July compared to the previous year, and condo sales were down 10 per cent.
Adding to the reasons for caution was Statistics Canada’s finding that 30,000 jobs were lost across the country in July, and that the total unemployment rate rose slightly to 7.3 per cent (up from 7.2 percent). Digging deeper into the figures, there were actually 21,300 full-time jobs added during the month, but 51,600 part-time positions lost.
Why is that a concern? Many of those lost part-time jobs were in the retail and services sectors, indicating that Canadians are tightening their wallets instead of going on shopping sprees and eating out at restaurants.
The $15-Billion Silver Lining
All that said, some Canadians are still reaping the benefits of our strong dollar and relatively healthy economy by buying depressed foreign assets from their cash-strapped owners. An article in the August 6, 2012 issue of Bloomberg Businessweek pointed out that some large Canadian firms and pension plans have been going on a European shopping spree recently. Quebec-based convenience store chain Alimentation Couche-Tard, for example, spent $3.5 billion to buy Statoil, a chain of Norwegian gas stations. The massive Ontario Teachers’ Pension Plan (it’s worth about $117 billion) bought another Norwegian company, clothing maker Helly Hansen. And Brookfield Asset Management bought a group of buildings in London’s financial district for $795 million.
In total, Canadian firms and funds purchased $15.1 billion in European assess in the first half of 2012, second-only to the U.S. in total spending in the Old World continent.